Suppose Square Group has a bond with 9 years to maturity. The bond has an annual coupon of $80 and a par value of $1000. If the interest rate in the market is 10 percent, what will the bond be worth?

 

Answer:

Value of the bond today - 884.82

Step-by-step explanation

The concepts of bonds payable and investment at amortized cost are the same. The only difference is the point of view of both parties. The point of view of the issuer or seller is bonds payable and the point of view of the investor or buyer is investment at amortized cost.

If premium amortization, it should be deducted to the carrying amount in order to equal to the amount of face value because that is the goal of the amortization table. 

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